School Catchment Areas …. What they really mean for property investors

Parents have been preoccupied by school catchment areas and the impact they have on property prices and values for years. But very little has ever been said about how school catchment areas might affect your decision when investing in property. In this report we will look how school quality and school catchment areas can affect property investors and buy to let landlords.

Many reports suggest there is a close link between property values and school catchment areas. Research by Savills suggests that property prices surrounding the top 400 best performing schools are on average 25% higher than adjacent areas. Research by Lloyds Bank suggests a good local school adds £21,000 to the value of an average property there.

In reality of course it is not quiet so simple. Here are some factors to bear in mind when investing:

* Good schools are often located in what are thought of as ‘upmarket’ areas – but not always. Investors need to be aware that property prices in what are thought of as ‘downmarket’ areas can still be elevated due to the presence of a good school nearby.

Similarly, you will probably pay a far higher premium for a property that is located in an area where latent demand is high and supply is low than the premium you will pay for school quality.

* School catchment areas are something of a myth nowadays. It isn’t a given that children can go to a school if they live in its catchment area – it may be heavily oversubscribed. Consider applications and the number of places available as well.

Schools apply a range of admissions criteria, over and above catchment areas. These can include religious faith (and to what extent it is followed), whether a child applying for admission has a sibling already at the school, and medical and social needs. It’s difficult if not impossible to assess what impact this has on property prices.

* The extent to which a school affects property prices varies from area to area. The impact is often highest in middle market areas where parents are keenest to seek out a good state school. Frequently the impact is not quite so high in upmarket areas (but there is still an impact) where parents tend to use fee paying schools anyway.

* School quality affects different types of property differently. It is likely to affect family sized property most acutely. On the other hand, apartment prices and city living type property may not be impacted much at all since they are bought by singles/couples without children.

* Schools measure catchment areas by distance but travel to school time is much more significant than distance for parents.

Here are some steps you might consider taking when investing in property where local schools appear to impact property prices:

* Check catchment area maps. These are usually provided on school websites. Be aware they can be quite erratic in some cases, excluding areas close to the school while including some distant ones. Again, these are only a general guide.

* Check a school’s Ofsted results. But be aware these are not a totally reliable guide.

Struggling schools are under pressure to improve quickly and are inspected more frequently – so a ‘good’ report could be just around the corner. Outstanding schools tend to be inspected less frequently – potentially that allows plenty of time for results to decline before Ofsted reports on them.

* Ask agents which areas are sought after by parents with children attending ‘this or that’ school. If agents are aware of them, a premium will almost always be added when properties in these areas are valued.

* Consider the area as a whole. School quality is not the only factor to consider. The area could still have good prospects for investors regardless.

* Check and compare rental yields for buy to let. Property prices in areas of high school quality will most likely be inflated but rental levels will probably not be inflated to the same degree and in some cases not at all. The yield could be much poorer than property in a less desirable area.

As an overall strategy when investing: Consider the impact of school quality on a property you are thinking of buying for investment on a long term basis. (Property is, after all, best regarded as a long term investment, over 10 or 20 years.) School head teachers/staff/admissions policies can change in the short term so there is no guarantee a property you pay a school premium for today will be worth extra in the future.

You might also find/consider that, over the long term, the premium you pay for school quality seems considerable now – but over a 10-20 year period is insignificant in practice. For example a £20,000/25% school quality premium may impact heavily on owner-occupiers and seem substantial now. However, over the 20 year life of a property investment will be insignificant and may be more than rewarded by higher price appreciation and lettability.